The UK Chancellor’s Budget for 2002 has been criticised for increasing taxes without giving any boost to the economy, although it did include some tax relief for intellectual property which will benefit some software companies. There are also some tax credits for research and development spending.

The Professional Contractors Group (PCG) expressed disappointment that Gordon Brown’s Budget “failed to address the major concerns affecting small businesses.” It had hoped – but not expected – that Brown would abolish IR35, the tax that treats small businesses in the knowledge-based sector as “disguised employees” for tax and National Insurance purposes, thereby preventing them from operating on similar terms to their larger competitors.

Jane Akshar, Chairman of the PCG, said of the Chancellor’s speech:

"What he gives with one hand - he takes away with another. This is a schizophrenic attitude to small businesses. The Chancellor has reduced the corporation tax rates for small businesses, while leaving many of them uncertain whether they will pay tax under those rules or under the punitive IR35 regime. Specific tax breaks for small businesses are meaningless while there is legislation which prevents many small businesses from operating as such. "

Stephen D Lane, tax Partner at Masons, the international law firm behind OUT-LAW.COM, summarised yesterday's Budget as follows:

"The Chancellor yesterday introduced a largely technical budget with several new measures aimed at businesses. These included a stamp duty exemption for transfers of goodwill, further anti-avoidance stamp duty measures aimed at commercial property transactions, a reduction in the commencing rate of corporation tax from 10%to zero, the introduction of a flat rate of VAT for small businesses and capital allowances of 100% for investment in green technology."

In addition, employee's and employer's National Insurance Contributions ("NIC") are to increase by 1% in the next tax year. The big change is the introduction of a one per cent employee's NIC charge on earnings and profits above the current employee's upper threshold. Whilst the increase in NICs was perhaps to be expected following recent comments by the Prime Minister, this does little to stimulate growth within the economy and seems merely to be aimed at increasing the tax take."

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